Cloud computing companies and content providers with customers in the country may be needed to pay equalisation levy on their revenue from the next financial year as the government expands the scope of a tax levied on the advertising income of multinational Internet firms, people familiar with the matter said.

“The gamut of equalisation levy could now cover cloud computing and entertainment services provided to Indians by multinationals. The change in law could come in the upcoming Budget,” a person in the know said.

India became the first nation to tax digital transactions when it introduced the equalisation levy of 6% — also known as the Google tax — on the advertising revenue of multinational web companies in June. Now, based on feedback from senior tax experts, the government is widening the ambit of the levy.

If the change is made in the Budget scheduled for February 1, the tax could be applicable from the financial year starting April 1, 2017, with likely repercussions on customers of cloudbased services and online entertainment such as streaming video and audio.“If the levy is extended to other companies like those providing cloud computing or online entertainment, customers may see their costs for these services going up by about 6-8% as some companies may choose to pass on the cost,” said Shefali Goradia, a partner at BMR Advisors.

While the equalisation levy is 6%, the actual burden could be about 7-8%, mainly due to the grossing up of taxes. Currently, the equalisation levy is applicable only on online advertisements, affecting a handful of companies including Facebook, Google, Yahoo and LinkedIn. Most of these companies, apart from LinkedIn, pass on the additional cost to their customers.

The government wants to broaden the scope of the equalisation levy in a phased manner, said people close to the development, and this could include even the downloading of apps on smartphones. “It was earlier decided that by December this year the levy would be applicable on applications (apps) bought on platforms like Google or Apple. However, due to other regulatory changes, equalisation levy was postponed for the budget,” the person with knowledge of the matter said.

UNIQUE TO INDIA Industry experts said the equalisation levy allows multinationals to claim credits in their home country. However, no other country has such a tax at the moment. “In most cases, multinationals are only going to pass on the additional cost of equalisation levy to the customers. This is especially true in cases where the multinationals are market leaders and therefore they can afford to pass on the cost to the consumers,” said Amit Maheshwari, a partner at Ashok Maheshwary & Associates LLP.

“One of the primary reasons for this is that the MNCs would not be able to take credit of the levy in their home country.” India was the first to start taxing the revenue of multinational companies in the digital space, in line with the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting project to tax ecommerce transactions.

From the next financial year, multinationals will have to submit details of their revenue, profit, people they employ and taxes paid in each country, according to the OECD framework, which is aimed at curbing tax evasion through loopholes in international laws.

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